John Grogan: Post haste could spell disaster for Mandelson

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BBC Parliament has developed a good line in Bank Holiday specials. At Easter, they replayed in its entirety the "no confidence" debate from 1979 which led to the fall of the Callaghan Government.

Labour MPs tuning in might have reflected that this confidence vote was triggered by internal party divisions.

Surprisingly, these were not about the major economic problems of the day but concerned Scottish devolution.


In turn, the Brown government is now threatened by party wrangling on an important, but not central, political issue – Peter Mandelson's proposals to part-privatise the Royal Mail.

The Postal Services Bill will clear all its parliamentary stages in the Lords before the Whitsun recess. There is then the small matter of the European and local elections, on June 4. The plan, as announced, is to introduce the Bill into the Commons shortly thereafter.

Government whips are facing the problem that no fewer than 148 Labour MPs have signed a motion rejecting the sale of a minority stake in Royal Mail "which would risk fracturing one of Britain's greatest public services".

At the heart of the rebels' case is that much-needed modernisation of Royal Mail need not mean privatisation. The Royal Mail actually made a profit last year. With Government loans available, it has the funds to invest in new machinery.

Besides, one common characteristic of all six mail services in Europe which are fully or partly-privatised is that it costs more to post a letter, and that the service is less comprehensive than in the UK.

Email and use of the internet can be a commercial opportunity as well as a threat, if the tremendous national asset of dedicated postal workers delivering to every address in the country could be used more effectively for goods ordered online.

It has to be said that opinions in the Parliamentary Labour Party are pretty polarised on the issue. This is partly because last October, with the support of Ministers, the Labour Party conference declared that it was in favour of "a wholly publicly owned, integrated Royal Mail Group". On the other hand, the Business Secretary has staked his reputation on delivering part-privatisation.

The gulf was illustrated at a meeting with backbenchers before Christmas, when Lord Mandelson was asked whether selling part of Royal Mail to a competitor like TNT was not a bit like selling shares in the BBC to Sky? Could we not all agree, asked his questioner, that this would be unacceptable?

Lord Mandelson paused for a moment and then said that it would depend on the terms of the deal.

In early June, the Prime Minister will have to take a decision as to whether to press ahead with the Bill or substantially change policy. The former could well be the kamikaze option. No Prime Minister would be likely to survive 148 of his Parliamentary colleagues voting against the Second Reading of a flagship policy.

So the temptation will be to resort to the traditional whips' tactics of a combination of minor cosmetic concessions combined with a bit of arm-twisting to get that number down.

The dilemma for 10 Downing Street is that in these circumstances, could they be sure that the opposition parties would support the Bill in the division lobbies?

David Cameron has indicated that if the Government made concessions to the rebels which watered down the legislation, he might have to think twice about supporting it.

If the Prime Minister, however, was of a mind to change course, there could be many reasons he could give. To start with, it is reported that nobody has come close to offering a reasonable price for Royal Mail. Ministers recently stepped back from sale of the Tote because of the credit crunch. Why is it prudent to sell the Royal Mail in such circumstances?

In addition, the most likely purchaser of shares is the Dutch mail company, TNT. The regulator, Postcomm, has indicated that there could well be competition concerns if Royal Mail's major commercial competitor – particularly for business mail – was to stop competing vigorously against it.

Other mail operators, like Deutsche Post, have said they are not interested, which would leave the prospect of the Government having to sell a minority stake to the private equity firm, CVC, who are the only other organisation to express an interest.

Of course, it would not be credible for the current Business Secretary – and former EU Commissioner – to preside over such a change in emphasis.

It is why the odds on Lord Mandelson achieving his lifetime's ambition to become Foreign Secretary are shortening by the day. The stakes could not be higher.

John Grogan is the Labour MP for Selby and leading opponent of the Royal Mail's part-privatisation.